Global Internet Race Finally Takes Off in Earnest
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News just broke that the $26 billion-plus merger between Sprint (S) and T-Mobile (TMUS) is going forward. Apparently, the federal judge in the case weighed the arguments carefully and decided that consolidation of the two telecommunications companies is good for the free market. (More likely, he already bought one of the new 5G-enabled phones and can’t wait to use it.) Or perhaps he read the news about how SpaceX is planning to spin its Starlink satellite constellation into a new business, demonstrating that you never know how the telecommunications industry will evolve. While we are talking about two different types of technology – cellular versus satellites – and infrastructure to deliver service, the point is that there are never any sure bets. Maybe that’s why Softbank makes so many big investments across so many competitors within the same industry – including SpaceX rival OneWeb in the race toward global internet.
The topic of global internet is one that we’ve revisited regularly over the last three years. We even sent one of our MBAs into the hinterland of Alaska to understand the challenges and costs to deliver broadband internet to remote corners of the globe. (Spoiler alert: It ain’t cheap.) More recently, we looked at the impact of cheap satellites and launch platforms on making massive undertakings like the SpaceX Starlink constellation possible. The Elon Musk-led startup is so bullish, as you’ve probably already read by now, that it is seriously considering spinning off Starlink into a separate, public company. While SpaceX itself sports an estimated value of more than $33 billion on $3.2 billion in disclosed funding, a standalone global internet company could be worth $30 billion by 2025 – based on a few healthy assumptions.
You can read about all the technical details about why Starlink is the biggest deal since Star Wars elsewhere, as well as the challenges it faces, such as building the ground-based infrastructure for the 10,000 12,000 30,000 satellites that SpaceX plans to put in low earth orbit (LEO), just a few hundred miles above the planet’s surface. We want to focus on the other efforts to bring global internet services to the masses in this article.
Update 02/16/2021: SpaceX has raised $850 million in additional funding raising their valuation to around $74 billion. This brings the company’s total funding to $6.3 billion to date.
Hardware is Even Harder in Space
One thing to keep in mind is that SpaceX isn’t the first company to try to deploy a satellite network to provide data communications all over the world. One of the most well-documented cases comes from an outfit called Iridium (IRDM), a nearly 20-year-old satellite company that we profiled in our list of 10 satellite stocks. It’s also the company behind a new global air traffic control system.
The original 66-satellite constellation – first designed to work with 77 satellites, the atomic number of the metal Iridium – actually made it into LEO. Unfortunately, the company went bankrupt in rather spectacular style. Apparently, most people weren’t that keen to spend $3,000 for a satellite phone and pay as much as $5 a minute to talk to someone at the South Pole. This was also the early 2000s, and the first 3G phones were starting to come out. Another company sporting the same name took over the Iridium constellation and eventually launched a second generation of satellites. Today, Iridium II is a $4 billion company that serves specialty markets, including the Industrial Internet of Things (IIoT), with voice and limited data service anywhere in the world. In other words, global internet lite.
“Global” Satellite Internet in the United States
The next rung on the ladder to global internet is occupied by companies like Viasat (VSAT) and Hughes Network Systems – and we use “global” here in the same way that the World Series is a riveting international competition. Both companies have long, convoluted histories, but share some basic characteristics, as the two largest providers of broadband satellite internet in the United States. They generally serve customers in rural areas where people can only stream menacing banjo music, along with industries like aviation. We profiled Viasat, founded in 1986, in our satellite stocks article a couple of years ago.
Founded in 1971 by seven engineers and a lawyer in what sounds like a very odd remake of Snow White, Hughes is a wholly owned subsidiary of EchoStar (SATS), which was the company behind the DISH Network brand. Today, it seems that EchoStar is primarily a satellite communications and internet company. Its HughesNet service reportedly has about 1.3 million U.S. subscribers, offering a passable semblance of highish-speed internet from about 22,000 miles away on a handful of satellites in what’s called a geostationary orbit. That’s much higher than the LEO of the Starlink constellation, providing broad coverage but much slower speeds. However, real global internet is theoretically possible with as few as four satellites at that higher altitude, so it’s conceivable that these companies could enter the global internet race. In fact, HughesNet has expanded to four countries south of the border since 2016.
Big Tech Goes to Space
Of course, no one is that interested in old stories about low-profile companies these days. Also, they don’t really fit into the global internet narrative where big-hearted billionaires want to bring connectivity to the unwashed masses. So let’s check on where a couple of the big tech companies are in their bid to launch global internet networks.
Amazon
Not satisfied with total domination on planet Earth, Amazon (AMZN) revealed last year that it was entering the global internet race by building a LEO constellation of more than 3,200 satellites to bring “low-latency, high-speed broadband connectivity to unserved and underserved communities around the world.” It also doesn’t hurt that there are an estimated 3.8 billion potential customers who still don’t have access to Amazon Prime the internet. Satellites developed by Project Kuiper, named after the father of modern planetary science, will no doubt get some discounted airfare thanks to Amazon owner Jeff Bezos’ other space-based venture, Blue Origin.
While Facebook abandoned its plan to use drones to deliver broadband internet back in 2018, it apparently switched its strategy to satellites around that same time. The big difference here is that the social media monstrosity is developing a laser-based communications system that could potentially support much higher data rates than radio signals. The so-called Athena satellite is being developed by a secret Facebook subsidiary called PointView, in collaboration with Space Systems Loral (LORL) and Atlas Space Operations. The latter is a startup that has raised $4.5 million and specializes in ground-based infrastructure for satellites. The former is another company from our list of satellite stocks, with a big stake in yet another satellite company building its own version of a global internet constellation, Telesat.
Canada and Beyond
Telesat is a Canadian satellite communications company that has been around in some form or another since 1969. It is embarking on its own 300-strong LEO satellite constellation that it says will be able to provide fiber optic-like speeds to rural and remote areas. It also wants Telesat LEO to serve as the communications backbone for mobile customers in emerging markets, as well as customers in the maritime and aviation industries. The privately held company is mainly owned by Loral and Canada’s Public Sector Pension Investment Board.
Last year, the company announced a roughly $900 million, 10-year contract with the Canadian government to provide internet access to remote corners of the sprawling country.
A Tangled World Wide Web
Of course, no article about the companies vying for global internet would be complete without a mention of OneWeb, a London-based startup founded in 2012 with the sole goal of building a satellite-based global internet service. The NewSpace startup has raised at least $3 billion in funding, with a reported valuation around that same amount. Among its high-profile investors is Sir Richard Branson, owner of space tourism company Virgin Galactic (SPCE) and smallsat launch provider Virgin Orbit, and free-spending SoftBank. Other investors include Hughes Network Systems, Qualcomm (QCOM), Intelsat (I), and even the government of Rwanda.
Phase one in the OneWeb playbook involves about 650 satellites, with service starting as soon as next year. Just last week, the company launched 34 of those satellites into orbit in its second major deployment of the constellation. However, that news has been largely lost in the high-profile lawsuits filed against OneWeb by some of its key investors. About two-and-a-half years after a failed merger between Intelsat and OneWeb, the former filed a lawsuit last September against the latter and SoftBank, alleging fraud and all sorts of alleged conspiracies around IP. Meanwhile, Virgin Orbit began its own legal battle against OneWeb last June over a canceled launch contract. For a company wielding so much gold, SoftBank seems to have an anti-Midas touch these days.
Update 01/14/2021: OneWeb has raised $350 million in funding to fund its first satellite fleet. This brings the company’s total funding to $3.4 billion to date.
Global Internet Using Geostationary Satellites
Last year, we introduced you to San Francisco-based satellite startup Astranis in our article about a new generation of geostationary satellites. The company just raised another $90 million in debt and venture capital, bringing total funding to more than $103 million, with top VC firm Andreessen Horowitz again joining the Series B round. Currently, most of these geostationary satellites used for telecommunications are as big as double-decker buses, making them very expensive to manufacture, launch, and operate. The economics dictate that you need to park these behemoths over large populations in order make back your investment. The smart folks at Astranis, whom we interviewed for our piece on broadband internet in Alaska, have figured out a way to shrink those satellites down to about 1/20th the size. The company is starting with providing service to the nearly 40% of Alaskans who don’t have internet, with plans to eventually launch 30 satellites for global internet.
Global Internet for IoT
The internet is not just about connecting people to social media accounts so that big tech companies can harvest their data for psychographic manipulations or other questionable insights. It’s also about connecting sensors and machines, as part of the interconnected web of things called IoT, with applications for agriculture, smart cities, and more. And there are a number of smallsat companies interested in serving this market in various capacities.
One of the newest kids on the planet is Swarm, a Silicon Valley startup founded in 2016 that picked up $25 million in funding about a year ago, bringing total raised capital to $27.7 million. Its sandwich-sized SpaceBEE satellites got FCC approval last year for a 150-satellite constellation, which could grow to 600 nanosatellites in the future. The satellites are too small to support broadband internet but powerful enough to provide data links for monitoring assets, such as wind turbines that need to be cleaned or for tracking global fleets of trucks. Swarm is able to shrink its communication satellites down to size because they don’t require thrusters to maneuver. Instead, SpaceBEE satellites cruise through the cosmos by cleverly catching currents created by the Earth’s magnetic field or solar radiation from the sun.
A decade-old Israeli company, NSLComm, also has designs on the IoT market and beyond based on a new antenna design. The startup has raised about $9.3 million in funding. At the core of the company’s technology is a sort of spring-loaded antenna that is stowed during deployment and released once in orbit. NSLComm claims that its nanosatellites will be able to not only support low-bandwidth applications but also high-speed internet. The company is reportedly planning to launch 30 satellites by 2021 and hundreds by 2023. It sounds like NSLComm is also selling the tech to other companies, listing among its customers satellite and spacecraft developers and manufacturers.
Conclusion
Global internet isn’t one of those just-out-of-reach technologies that never seem to materialize like personal jetpacks and flying cars. It’s literally happening right now. What isn’t decided is how the race will play out. Will SpaceX and its Starlink constellation simply win by sheer size? Or will the market be big enough to support multiple players with differing options and price points? Will technology be able to overcome the laws of physics so that satellite-based high-speed internet can one day be beamed directly to mobile devices on the cheap? And while space junk is always a concern, there’s also the challenge of so much electromagnetic noise that we’ll need to turn to other forms of wireless communication?
After all, Google is still out there beaming internet from balloons and now drones thanks to a new partnership with SoftBank. And even a major aerospace company like Boeing (BA) is working on its own satellite-based constellation, with an eye toward getting a piece of the projected $410 billion NewSpace internet market. You got to figure that Netflix (NFLX) isn’t too far behind.
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